The government has increased underwriting commission for the primary dealers (PDs) by 1.0 paisa (Tk 0.01) aiming to make the PD system attractive, officials said Tuesday.

Under the new provisions, the PDs will get 3.5 paisa as commission for Treasury bills (T-bills) up from the existing level of 2.5 paisa, while the PDs will receive 8.5 paisa for treasury bonds up from 7.5 paisa.

Three best PDs of each quarter, however, will get 4.5 paisa for T-bills from the existing level of 3.0 paisa. In the case of T-bonds, they will receive 9.5 paisa as underwriting commission from 8.0 paisa.

The increased underwriting commission will come into effect from April 1 this year, they added.

"The government has increased the commission in line with the cash and debt management committee (CDMC)'s recommendation," a senior official at the Bangladesh Bank (BB) told the FE.

He also said the central bank would inform the PDs about the revised underwriting commission shortly.

"It's an incentive for the PDs. It will also help make the PD system attractive," another BB official said, adding that the central bank plans to provide more incentives to the PDs.

The government as well as the central bank has taken the latest move against the backdrop of lack of zeal on the part of some PD banks due mainly to the absence of a secondary securities market.

Currently, 12 PD banks are now holding government securities worth around Tk 180 billion in excess of their statutory liquidity ratio (SLR) requirement with the central bank.

"It will not able to bring a positive impact for the PD system because of higher negative spread between financing cost of the government securities and income from the same," a senior member of the Primary Dealers Bangladesh Limited (PDBL) told the FE.

He also said the PDs are now running their business with 2.0-3.0 per cent negative spread of the government approved securities.

"We're now facing a mismatch in their asset-liability seriously because of financing in the government's long-term securities with short-term source of funds," the PDBL member said.

The government is now borrowing from the banking system with the auction amount of the bonds and of T-bills at the ratio of 92.5:7.5.

The PDBL earlier submitted a letter to the finance ministry requesting its Secretary to restructure the auction amount of the bonds and of T-bills at the ratio of 50:50 instead of the existing 92.5:7.5.

"The business growth plans, particularly long-term financing, of PDs, are being hampered seriously due to the mismatch of their funds," he noted.

Currently, three T-bills are being transacted through auctions to adjust the government borrowing from the banking system.

The T-bills have 91-day, 182-day and 364-day maturity periods.

On the other hand, four government bonds -- 5-year, 10-year, 15-year and 20-year, are being traded in the market.

The central bank earlier selected 15 PDs -- 12 banks and three non-banking financial institutions (NBFIs) -- to deal with the government-approved securities in the secondary market.

Financial Express/Bangladesh/ 21th March 2012